Alibaba Stock Pops After Earnings Beat. How It Plans to Replace Nvidia Chips.

Alibaba reported fiscal first-quarter earnings early Friday. (Dreamstime)

Alibaba stock rose after the Chinese e-commerce conglomerate posted a quarterly profit ahead of expectations but revenue missed forecasts amid a fierce price war in China.

The company’s fiscal first-quarter net income came in at $5.9 billion on revenue of $34.6 billion, compared with FactSet estimates of $3.7 billion net income on revenue of roughly $35 billion.

Even as revenue missed the mark, it grew 2% year over year. The result comes as Alibaba is waging a price war with domestic rivals, trying to hold on to market share in the increasingly competitive consumer retail space.

The company attributed the 76% rise in net income from a year earlier to equity investments and gains from the disposal of Turkish online shopping company Trendyol, which was partly offset by the decrease in income from operations.

American depositary receipts of Alibaba rose 8.9% to $130.20 in early trading Friday. Shares bounced back from an initial fall following the earnings report as investors weighed the results and other developments.

The stock might also have been reacting to a Wall Street Journal report on Friday that said Alibaba, China’s biggest cloud-computing company, has developed a new and more versatile artificial-intelligence chip. It comes as AI chip maker Nvidia faces an effective sales ban in China due to opposition from Chinese authorities. Alibaba couldn’t be reached for a comment immediately.

Experts largely agree that China is far off from having the capabilities to make chips that can rival Nvidia’s most advanced products, which it isn’t allowed to sell to China under Washington’s export restrictions. Still, companies such as Huawei, Cambricon , Baidu , and now Alibaba are racing to come up with alternatives to Nvidia’s H20—the most advanced chip it’s allowed by the U.S. government to sell to China.

Even as Alibaba’s commerce business racks up far more revenue than all its other segments combined, its smaller AI ventures and cloud business also attract close attention.

Sales in its cloud segment accelerated, growing 26% from last year to $4.7 billion, above expectations of $4.5 billion.

“The strength of our core businesses gives us confidence and resources to make significant investments in quick commerce and AI initiatives,” said Alibaba CFO Toby Xu.

Often seen as a bellwether for the Chinese economy, Alibaba shares have outperformed the country’s wider stock market this year, rising more than 40% compared with the MSCI China index, which is up about 28%. Alibaba was a Barron’s stock pick in October last year, due in large part to its cheap valuation and artificial-intelligence ventures.

Alibaba’s China commerce business revenue, which includes online shopping platforms Taobao and Tmall, grew 10% in the quarter to $19.6 billion. However, profits decreased 21% to $5.4 billion as the company is investing heavily in so-called instant retail, the delivery of goods within an hour after an order is placed.

Alibaba and rivals JD.com and Meituan have been waging a price war the past year, which has driven up volumes but hampered revenue and profits.

China’s leading food-delivery group, Meituan, reported a whopping 89% drop in quarterly adjusted net profit on Wednesday, and warned about significant losses in the current quarter due to price competition.

“Alibaba’s positioning as a leading GenAI and cloud infrastructure provider remains unchanged, underpinning a key pillar of our longer term positive view,” said Benchmark analyst Fawne Jiang in a preview last month. Jiang has a Buy rating on the company’s American depositary receipts, a $176 price target, and recommends investors build exposure to the stock on dips. Shares edged lower Thursday to trade around $120 ahead of the earnings report.

Sentiment around Chinese stocks has been hurt by concerns about tariffs and how they might affect large exporters to the U.S. Those worries come amid stubbornly soft demand from Chinese consumers, whose spending power has been reduced by slumping property prices.

Write to Elsa Ohlen at elsa.ohlen@barrons.com